The Fair Wages and Healthy Families Act does not require an employer to pay out an employee’s unused earned paid sick time (PST) at the end of each year or at separation. Employers may choose to pay out unused earned PST at the end of the employer’s year or at separation.
However, an employer who elects to pay an employee for unused earned PST at the end of the employer’s year must comply with the requirements of Arizona Revised Statutes § 23-372(D)(4). That section of the statue requires the following:
Earned paid sick time shall be carried over to the following year, subject to the limitations on usage in subsections A and B. Alternatively, in lieu of carryover of unused earned paid sick time from one year to the next, an employer may pay an employee for unused earned paid sick time at the end of a year and provide the employee with an amount of earned paid sick time that meets or exceeds the requirements of this article that is available for the employee’s immediate use at the beginning of the subsequent year.
In other words, voluntarily paying out accrued PST obligates the employer to advance that sum of PST to be immediately available the following year. This is a trap for the unwary.
So remember – you don’t have to pay out PST at the end of the year, but if you do, you must provide affected employees with that sum of PST to be immediately available the following year.